The essential guide to RCEP for anyone establishing operations in Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand or Vietnam.
The Regional Comprehensive Economic Partnership (RCEP) Agreement entered into force on 1 January 2022 after almost a decade of negotiations. The agreement brings together Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam, to create the world’s largest economic bloc.
These 15 Asia-Pacific economies account for approximately 30% of the world’s population and GDP, making the RCEP the largest trade deal in history.
China’s economy goes from strength to strength
China is by far the largest economy involved in the RCEP. At $14.7trn, it accounted for more than half of the combined GDP of RCEP member countries in 2020.
China is the second-largest economy in the world and is forecast to take over the US by 2028. Its GDP grew consistently over the period analysed (1990–2020), even during periods of severe global hardship. In the fallout from the 2008 global recession, China’s economy grew by 11% in 2009. More recently, China saw a 3.1% increase in GDP in 2020 while many other major economies contracted due to the economic impact of Covid-19.
According to figures released by China’s National Bureau of Statistics, the country’s GDP expanded by 8.1% in 2021. In turn, China’s economy surpassed the EU’s in size for the first time in history.
Japan is the second-largest RCEP economy, representing roughly one-fifth of the partnership’s overall GDP in 2020. The country is the third largest in the world by nominal GDP and has the third-largest consumer market.
Japan has a reputation as one of the world’s most innovative countries and is one of the largest R&D spenders. The Tokyo-Yokohama area ranked as the top science and technology cluster in the 2021 Global Innovation Index.
In recent years, Japan has been hit by periods of economic turbulence. The country’s GDP fell by 16.9% between 2012 and 2013 due to weakened exports and a row with its main trading partner China. The economy continued to decline in 2014 and 2015. After a brief increase in 2016, GDP dropped by 1.4% in 2017. Following two years of economic growth in 2018 and 2019, GDP dipped again, by 1.8%, in 2020 due to Covid-19.
South Korea is the third-largest RCEP nation by GDP. It is considered one of the fastest-growing developed countries in the world. According to the World Bank, real GDP growth in the country averaged 5.5% annually between 1988 and 2019, driven by annual export growth averaging 9.3% during the same period.
Singapore had the highest GDP per capita of all countries analysed at $59,798 in 2020. The city-state is known as one of the world’s most progressive and business-friendly economies due to its sound monetary and fiscal policies and political stability. As a result, Singapore ranked first on the Heritage Foundation’s 2022 Index of Economic Freedom.
Australia recorded the second-highest GDP per capita of the RCEP members in 2020 at $51,693. Australia’s resilient economy and proximity to the Asian market make it an attractive destination for investors. According to figures from the OECD, Australia’s recovery post-Covid is well under way. Real GDP is forecast to grow by 3.8% in 2021, 4.1% in 2022 and 3% in 2023.
New Zealand had the highest population growth of all countries analysed at 2.1% in 2020. This can be attributed to natural increases as well as international migration. The country’s economy quickly bounced back from Covid-19 thanks to its strict lockdowns and measures to protect jobs and incomes. Its GDP is expected to grow by 4.7% in 2021, by 3.9% in 2022 and by 2.5% in 2023.
Laos had the highest inflation rate out of the RCEP members in 2020 at 5.1%. The country’s rising inflation is thought to be due to the rising cost of fuel as well as the depreciation of the Lao currency, the kip. In an effort to boost productivity, the government has decided to cut VAT from 10% to 7% in 2022.
Vietnam’s inflation rate hit 3.2% in 2020 due to rising food prices, medical costs and tuition fees. This trend looks set to continue in 2022 in light of the global increase in fuel prices. The government is reportedly considering increasing imports, reducing taxes and further support from the national reserves to ease the situation.
Brunei is the smallest economy of the RCEP members, standing at $12bn in 2020. The country relies heavily on the oil and gas sector, which accounts for 90% of government revenue, 90% of exports and more than half of GDP. In addition, the country has limited manufacturing capacity and depends on imports for most of its manufactured goods and food.
China, Australia and Singapore come out on top for FDI
Foreign direct investment (FDI) across the RCEP countries fell dramatically in the fallout from Covid-19. Overall, FDI project numbers fell by 38.9% between 2019 and 2020.
China is the largest FDI recipient out of all countries analysed. It received 412 FDI projects in 2020, representing 22.3% of RCEP FDI that year. This is less than half the number of FDI projects China received in 2019 (835).
Foreign investment in China has largely focused on manufacturing, IT, real estate and business services. Recent major projects include Germany-based car giant BMW’s $3.2bn expansion in Tiexi and Japan-based Nidec’s planned $921bn motor factory in Dalian.
Between 2003 and 2015, China consistently received more than 1,000 FDI projects each year. However, in 2014, FDI project numbers began to decline, falling year on year until 2017. Project numbers rose in 2018, before dropping in 2019 and halving in 2020 in light of Covid-19.
Experts have warned that the high levels of FDI China previously received are no longer sustainable due to domestic companies becoming more prominent and increased competition. In addition, rising tensions with the US may also impact China’s investment attractiveness.
Australia attracted 321 FDI projects in 2020, the second-highest amount out of all countries analysed. The country’s project numbers rose by 7.6% between 2016 and 2018 before falling by 1.1% in 2019 and by 25.9% in 2020.
According to figures from Austrade, Australia’s national investment promotion agency, one in ten Australian jobs are supported by FDI, accounting for 1.2 million people. Businesses in the country supported by FDI hold $2.7trn in assets, which is approximately one-quarter of Australia’s overall assets. In addition, FDI has also contributed to generating two-fifths of the country’s goods and services exports.
Singapore received the third-largest number of FDI projects of the RCEP members. The city-state is also by far the top FDI destination per capita at 5.3 projects per 100,000 people. It significantly exceeds the next closest country, New Zealand, at 1.3 projects per 100,000 people.
Key industries for investment include aerospace, electronics and pharmaceuticals. Singapore is also a popular regional headquarters location for multinational companies (MNCs). According to data from Singapore’s Economic Development Board, 46% of Asian regional headquarters are based in the city-state. Moreover, 59% of the Asian regional headquarters of technology MNCs are based in Singapore.
Indonesia attracted the second-highest level of FDI-related capital investment, following China. Despite the economic impact of Covid-19, FDI project values in the country soared from $12bn in 2019 to $20.2bn in 2020.
While many countries around the world are tightening their FDI regulations, Indonesia is one of the few that is easing its screening mechanisms. In July 2021, the government amended its list of sectors prohibited from FDI by opening up the telecommunications, construction, distribution and drilling industries to foreign investors.
In January 2022, Malaysia was named the best country in emerging South East Asia for FDI attractiveness in the Milken Institute’s Global Opportunity Index. It was recognised for its attempts to ease FDI restrictions and for introducing policies to facilitate trade. Malaysia attracted 100 inward FDI projects in 2020 across sectors including tourism, logistics and electronics.
